accountingunit 4 summary

7/29/2019 AccountingUnit 4 Summary

1/24

1 | P a g e - A c c o u n t i n g U n i t 4 - W i l b u r

Unit 4 Summary

Accounting Principles

Historical Cost Cost of stock; Cost of NCA

EntityReporting Period Prepaid and Accrued Revenue; BDA

Monetary Unit Purchase of stock from overseas suppliers always record in AUD

Conservatism LC/NRV the selling price should not be used as gains should be recognised

until certain and there is no guarantee that the stock can be sold at the selling

price; prevent overstating Assets (stock control) and Owners Equity

Consistency Treatment of product and period costs from one period to the next

Going Concern Prepaid and Accrued Revenue

Qualitative Characteristics

Comparability Treatment of product and period costs from one

period to the next

Understandability Headings/titles and formatting used in reports

Relevance Product costing it is important to calculate an

accurate value for stock as the mark-up is often

applied to the cost price to calculate the selling

price, too prevent selling prices to be too

high/low

Reliability Historical cost is used because it can be verified

by a source document

Effect of transactions on the Accounting Equation

Transaction Assets Liabilities Owners Equity

Sales Return

SP 2000+200 GST

CP 1200+120 GST

Purchase Return

1200+120 GST

Disposal of NCA

HC 4000, CV 1200,Bank 1000

Stock Write Down

400

Loss on Disposal of

Asset

600

Profit on Disposal of

Asset

200

Product Costing on

Units of Stock


2/24


Purchase NCA on

Credit

50000+5000 GST

Trade-in NCA

4000

Adjusting entry forPrepaid Revenue

2000 has now been

earned

Adjusting entry for

Accrued Revenue

Interest of 50 is owed

on the Term Deposit

Extension to recording

Credit Notes

A source document that verifies the return of stock by either a trade creditor or by a tradedebtor (Reliability)

It provides evidence that a debt owed to a creditor (Purchase Return) or by a debtor (SalesReturn) has been reduced by the amount of the return

How to Distinguish :

The suppliers name is always at the TOP Apurchase returns credit note has our name in the body (middle) of the credit note, we are

returning stock to the supplier. A sales return has our business name at the top of the credit note- we are receiving the

being stock in return.

Reporting Sales Returns separately

Relevance Provides information useful for decision making Provides additional information for management in relation to customer satisfaction Indicator of the quality and suitability of the stock that is being traded

Recording Sales Returns

Reverse FIFO or LOFI (last transaction regardless if it was drawings, advertising, etc.)Purchases Returns

Identified cost method


3/24


Recording Product costs from same supplier

Recording Product costs from different suppliers


4/24


Recording a Period Cost

Stock cardunit cost of stock without period cost

Hence, product costing includes ALL stock-related expenses (such as cartage in) recorded as Stock

Control in the CPJ, while period costing recognises individual expense accounts

Returns of stock

Reasons for returns Addressing Sales Returns

Poor quality or faulty Changing products or supplier

Damaged Improve product packaging or change to a more

reliable delivery company

Wrong colour, size or model Improve sales staff training to be more

responsive to customers needs and improve

checking mechanisms when orders are being

completed

Goods were delivered late and no longer

required

Changing to a more reliable delivery company


5/24


Product and Period Costing

Product costs Period costs

Costs associated with getting the goods into alocation and condition ready for sale

Costs associated with getting the goods into alocation and condition ready for sale

Costs can be allocated to individual items of

stock on a logical basis

Costs cannot be allocated to individual items of

stock on a logical basis (as they relate to more

than one item of stock) e.g. shipment for ALL

stock

Included in the calculation of cost of sales

allocated per item of stock sold

Period costs written off as buying expense for

the reporting period under Cost of Goods Sold

If not all goods are sold in this Reporting Period

Costs of Goods Sold will be lower and Gross

Profit and Net profit will be higher as the

additional costs are allocated only to the units ofstock sold

If not all goods are sold this reporting period

Cost of Goods Sold will be higher and Gross

Profit and Net Profit will be lower as the

additional costs are treated as expenses in theperiod in which they were incurred regardless of

the number of units sold

Effect on Stock Control in the Balance sheet

Higher (accurate)

Effect on Stock Control in the Balance sheet

Lower (understated)

IF ALL STOCK IS SOLD IN THE ONE REPORTING PERIODN THE EFFECT ON NET PROFIT WILL BE

EXACTLY THE SAME

Relevance when a cost is significant that it affects financial decision-making then it should be

considered material and should be reported

Issues : Product costs

There is no 10% rule to materiality and therefore relevance

Items to be allocated as product costs must be incurred in the purchase of stock items That is they must be logically traceable to stock items and be able to be allocated on a

logical basis

They must also be materially significant in terms of their dollar value The question of materiality is whether the omission of an item would affect management

decision making Potential Discuss Question

Insurance of Stock

Would usually be classified as a period cost as it does not usually relate to a specific numberof goods

However, if it isrelated to a particular delivery in transit it may well be treated as a productcost

Classification on the income statemento If incurred in purchasing the stock or in the delivery of stock to the shop it should be

treated as a cost of goods sold item (product/period cost)


6/24


o If the insurance relates to the goods on the shelves in the shop then it could beargued that this is incurred in selling the stock and should be reported as other

expenses

Stock valuation

Cost Net Realisable Value (NRV)

The original purchase price of the stock PLUS all

costs associated with getting the stock into a

position and condition ready for sale

Expected selling price of the stock less any

expected costs of marketing, selling and

distribution of goods

PLUS includes all product costs LESS includes all costs associated with selling the

stock

Reasons for NRV to be below cost price:

A decrease in demand Physical deterioration of stock Product has become obsolete Purposeful decrease in selling price below cost price as a deliberate marketing ploy

LC/NRV rule is applied to individual items or batches of stock


7/24


Balance Day Adjustments

U3 U4

Prepaid Expenses Prepaid Revenues

Accrued Expenses Accrued Revenues

Stock loss/gains Stock Write DownDepreciation straight line method Depreciation Reducing Balance Method

Prepaid Revenue

This is revenue received in advance or revenue received but not yet earned. Thebusiness must determine what part of the revenue received has been earned and

therefore must be reported in the current reporting period.

Two possible scenarios:

1) Customer orders stock to be delivered at some time in the future. Customer maypay a deposit at the time of ordering or pay in full. Some or all stock is delivered

before the end of the reporting period

2) The business earns revenue from a secondary source, such as Rent, and thisrevenue is paid in advance

DR Prepaid sales revenue CR Sales Revenue

Accrued Revenue

Revenue that the business has earned but not yet received. As a result, there is an Assetcreated because there is an expected inflow of economic benefit at some point in the future.

It excludes credit sales and involves a secondary revenue source, usually interest.

DR Accrued Interest Revenue CR Interest Revenue

Disposal of non-current assets

Recording this type of transaction can be quite complex. You may be asked to:

1) Record the depreciation allocated to this asset for the period prior to the saleDR Depreciation of Shop Equipment

CR Accumulated Depreciation of Shop Equipment

2) The next step is to remove the asset from the businessDR Disposal of Shop Equipment

CR Shop Equipment

3) The accumulated depreciation associated with the asset must now be removed (mustremember step no.1)

DR Accumulated Depreciation of Shop Equipment

CR Disposal of Shop Equipment


8/24


4) Record the purchase of the new assetDR Shop Equipment

DR GST Clearing

CR Sundry Creditor Ace Supplies

5) Record the trade-in of the old asset. This entry will reduce the amount owed to the SundryCreditor

DR Sundry Creditor Ace Supplies

CR Disposal of Shop Equipment

6) Calculate and record the Profit or Loss on Disposal of the AssetDR Loss on Disposal of Equipment

CR Disposal of Equipment

7) Pay Sundry Creditoris there discount?CPJ

Sundry Creditor Ace Supplies; chq 34; bank 11270; sundries 11500; GST 0

8) Calculate and record Deprecation at the end of the Reporting PeriodProfit or loss on sale of asset

Will occur because the amount received from the sale is different from the carryingvalue

Means the asset has been over or under-depreciatedOver-depreciation occurs when:

A profit on disposal occurs Useful life was underestimated Residual value was underestimated

Under-depreciation occurs when:

A loss on disposal occurs Useful life was overestimated Residual value was overestimated

Depreciation is based on estimates and so is generally inaccurate and a profit or loss will eventuate

Depreciation

Historical cost the cost of the asset to get into a revenue earning position/location condition ready

for use

Useful life the length of time the business will keep the asset

Residual Value The estimated value of the asset at the end of its useful life

Depreciable value HC-RV

Carrying Value HC AD


9/24


Depreciation Expense The amount of the cost allocated this period

Accumulated Depreciation The total amount of depreciation charged to date

Reducing Balance Method

Calculation : Carrying value x Depreciation Rate Recording and Reporting: No change Reducing balance method is used for assets that:

Contribute more the revenue earning in their early years than in their later years Less likely to break down in the early years than the later years The key is the type of asset

Issues:

Changing Depreciation methods- Consistency- Comparability

Profit lower in early years as depreciation expense is higher No overall effect on Net Profit over the life of the asset

Documents

Records

Reports

How did our business perform this reporting Period?

Analysis

How will our business perform in future periods?

Budgets


10/24


Budgeting

Budgeting is the process of predicting the financial consequences of future events, a budgetis the REPORT that predicts such things

Budgeted Reports

Budgeted Cash Flow statement shows all expected future cash inflows and outflows, andthe expected bank balance at the end of the period

Budgeted Income Statement shows all expected future revenues and expenses, and theexpected Gross Profit, Adjusted Gross Profit and Net profit

Budged Balance Sheet 0 shows all expected assets, liabilities and owners equity at somepoint in the future

Budgets vs actual reports

Budgets report future events rather than historical events. Budgets use estimates; no verifiable data

Importance of Budgeted Sales

Main revenue item in Budgeted Income Statement and significant cash Inflow (either as cashsales or receipts from debtors)

Level of sales crucial in estimating expenses that vary with number of units sold such as costof sales, wages

Affect how much stock is purchases, payments to creditors Balance sheet- Bank balance and Net Profit figure

Purpose of budgeting

Aid planningo Budgeting assists planning by predicting what is likely to occur in the future. This

allows the owner to prepare so that possible problems may be managed and

possible opportunities may be taken

Aids decision makingo Budgeting can aid decision-making by providing a standard against which actual

performance can be measured against. This allows the owner to identify problemareas and remedial action can be taken. Includes budgeted ratios.

Budgeted Cash Flow Statement

Planning for CFS

If predicted surplus:

Purchase of NCA Expand operations by employing more staff; increasing advertising Increase loan repayments Increase level of drawings


11/24


If predicted deficit:

Organise/extend overdraft facility Reduce drawings Defer loan repayment Defer purchases of NCA Capital contribution

Decision-making for CFS

Effectiveness of Advertising in generating cash sales Debtor collection procedures Creditor payment policies Level of cash payments for expenses Level of cash drawings Adequacy of finance for purchase of NCA

Budgeted Income Statement

Planning

Indicates future requirements of firm in staffing Stock levels Advertising campaigns

Decision-making

Level of sales and effectiveness of advertising Mark-up achieved Level of stock loss to assess stock management procedures Expense control Staff performance

Budgeted Balance Sheet

Planning

Helps prepare for replacement of NCA as it details carrying value of NCA in future periodsDecision-making

Setting a benchmark for indicators that assess liquidity and stability (e.g. WCR, Debt Ratio)Consecutive budgets (frequent budgeting)

Enables:

Identify monthly/seasonal trends


12/24


Identify when to undertake a particular cash activity e.g purchase of NCA More accurate, therefore more useful benchmark for comparison Allow earlier detection of problem areas so corrective action can be taken in a timely

manner

Variance Reports

Accounting report that compares budgeted figures against actual figures, highlightingvariances so problem areas can be identified and corrective action can be taken

F Favourable variance(i.e. better cash position, higher net profit than budgeted) U Unfavourable variance(worse off than budgeted)


13/24


Analysis

Analysing the performance of a business is more than looking at the final bank figure or the

$ amount of Profit or Loss made by the business.

A raw number does not mean a lot unless we can use that number for analysis or comparison.

In Unit 4, financial reports are analysed using a number of performance indicators or financial ratios.

These ratios assess the business performance in terms of:

1) Profitability the ability of the business to earn profit, measured by comparing its profitagainst a base such as sales, assets or owners equity

2) Efficiency the ability of the business to manage its assets and liabilities3) Stability the ability of the business to meet its debts and continue its operations in the long

term

4)

Liquidity the ability of the business to meet its short-term debts as they fall due

Profitability

Profitability is a measure of how the business has performed in terms of returning a profit compared

to a base such as assets, sales and owners equity. There are four financial ratios associated with

Profitability.

Return on Owners investment (ROI)

%

Return on Owners investment measures the return or money back the owner has received on

his/her investment in the business. In the real world a person has many alternative investments

available to them invest in shares, deposit their money in a high interest account, purchase

property. All of these investments provide a return dividend, interest or rent. Each investment has

its rewards and risks.

An owner of a business hopes to be rewarded for their investment of time (working hours), money

(capital), expertise and what they have given up to operate the business (previous job, savings).

A profitability indicator that measures how effectively a business has used the ownerscapital to earn profit

Profit earned per dollar of capital invested Used to decide between alternative investments Benchmarks: past performance, budgeted goals, industry average Assesses profitability from an investors point of view Linked to Debt Ratio


14/24


Return on Assets (ROA)

%

Return on Assets is designed to measure how well the assets of the business are generating revenue

and hence, profit. The Equipment, Stock, Office Furniture, Vehicle, etc. all contribute to the business

earning revenue.

As the assets age they become more inefficient, breaking down more and hence earn less revenue

for the business. This ratio helps an owner determine if the assets of the business are getting to the

point where they may need replacing.

A profitability indicator that measures how effectively a business has used its assets to earnprofit

Net Profit per dollar of assets controlled by the business Assesses profitability from a managers point of view Will always be lower than ROI because Total assets are greater than Owners equity, unless

it has 0 liabilities

Depends heavily on firms ability to earn revenue and control its expenses (Net Profit)

Net Profit Margin (NPR)

%

When an owner determines selling price for their product they must consider:

What did the product cost the business? What price are my competitors charging? Will my selling price allow me to make a profit?

This ratio determines how much (in % or $ terms) profit is made for each $ of sales

Good indicator of expense controlGross Profit Margin (GPR)

%

In the same manner, Gross Profit examines the profit made on just the buying and selling of stockthe mark-up.

A business can use this ratio to determine if stock expenses Freight, Insurance, Cartage, etc are

costing the business too much and affecting the ability of the business to make an overall Net Profit

Assess mark-up Increasing selling price may decrease sales, therefore GPM may increase but $GP decrease due

to less sales

Cheaper supplier may decrease sales due to poor quality or increase in sales returns


15/24


Efficiency

Efficiency measures examine how well a business is managing key items such as Debtors, Creditors,

Stock and Assets. Key questions about each of these items need to be answered:

1) How quickly do our Debtors pay?2) Is our stock staying on the shelves too long?3) Are we paying our Creditors too quickly?

There are 4 primary measures of efficiency:

Debtors Turnover (DTO)

number of days

It is important for a business to know how long it takes for Debtors to pay. Debtors are a major

source of cash and the cash received is used to pay Creditors and purchase stock. All Debtors areoffered terms so it is important to know if our Debtors are meeting those terms and if not, what

corrective action needs to be taken by the business.

Average number of days it takes a business to collect cash from its Debtors If cash is collected quickly, it can be used to meet other debts as they fall due Look at credit terms

Asset Turnover (ATO)

times per period

Asset Turnover is more complex it examines whether the business is using its assets efficiently togenerate sales. It also allows the owner to evaluate whether the purchase of a new asset has

improved performance.

An efficiency indicator that measures how productively a business has used its assets to earnrevenue

Measures number of times in a period the value of assets is earned as Sales Revenue; thehigher the Asset Turnover, the more capable the firm is of using its assets to earn revenue

ATO vs ROA; higher ATO does not equal higher ROA, think expensesStock Turnover (STO)

number of days

The selling of stock is the major source of revenue for a business. It is also a cost to the business.

Therefore careful management of stock is important. A business cant hold too little or too much

stock. Each situation can cause problems for the business:

*Too much stock can mean stock becomes out-dated, obsolete, and increases storage and insurance

costs

*Too little stock may see the business run out and miss sales; the business is continually ordering

stock leading to an increase in expenses such as Delivery and Customs Duty; missing out on discount

revenue from bulk purchases


16/24


Optimal Stock Turnover rates will differ according to the type of stock sold cars should be sold

within a year (before new models are introduced) whereas milk should be turned over every 3-5

days.

The average number of days it takes for a business to convert its stock to sales To fix high STO (too slow):

o Increase sales (i.e. advertising, better stock mix)o Decrease level of stock held (order less, just in time ordering, replace slow moving

lines)

Low STO (too fast):o Selling price too low leading to loss of potential revenueo Holding too little stock: Increase in delivery costs; missing out on discount revenue

for bulk purchases

Creditors Turnover (CTO)

number of days

As with Debtors Turnover, it is important to know how regularly a business is paying its Creditors.

The money to pay Creditors generally comes from Debtors and Sales of stock. It is important for a

business to manage its cash flow efficiently so Creditors are:

*Paid early enough to earn discounts

*Not threatening to cut off supply

*Not requiring the business to regularly go into overdraft to make payments

The average number of days it takes for a business to pay its creditors Effectiveness of managing creditors If discounts are offered, and cash is available, then it is beneficial If no discount, pay close to credit terms (pay as late as possible) retaining cash in the

business for longer so it can be used for other purposes

Should not exceed Credit Terms because:o Interest charges on late accountso Removal of Credit Facilitieso Reduction in Credit Rating

Liquidity

Liquidity ratios examine the ability of the business to generate cash flow and pay debts. The ability

of the business to meet its short term financial commitments as they fall due. This measure relies on

the ability of the business to generate sufficient cash flow to meet all urgent, current and long term

debts.

There are 4 main liquidity ratios in Unit 4:


17/24


Working Capital Ratio (WCR)

Ratio

Are we able to repay our short term debts? Our short term debts are our Current Liabilities they

must be repaid within the current reporting period (12 months). To pay these debts we need to use

our Current Assets. Consequently, our Current Assets must cover our Current Liabilities.

However, as with many ratios it is a balancing act. Too many CA may mean we have too much tied

up in Stock, Bank or Debtors.

A liquidity indicator that measures the ratio of current assets to current liabilities, to assessthe firms ability to meet its short term debts

More than 1:1 satisfactory 1:1 no margin for error if any current assets are not converted to cash, the business will

face liquidity problems

Less than 1:1 the owner needs to seek additional finance through:o Cash contributiono Extending Overdraft facilityo Loan

Much greater than 1:1 suggests there are idle current assets:o Bank expand operations, term deposit/other investmentso Stock control additional storage costs , obsolescence, out of fashiono Debtors Control too many ageing debtors, bad debts

Corrective action:o Taking extra drawings, purchase NCAo

Lower stock levels and reorder later

o Contact debtors and collect fundsQuick Asset Ratio

Some of our debts are more immediate. Creditors and Accrued Expenses must be paid quickly

(usually within 30 days). We measure our ability to pay these immediate debts by examining our

Quick Assets those assets that can be turned into cash quickly without a great loss in value.

Some CA cannot be turned into cash quickly. Stock and Prepaid Expenses are difficult to turn into

cash quickly (and for their Historical Cost) so we exclude them from the calculation.

As with WC, we dont want too many Quick Assets as it may mean we have idle cash or too many

Debtors.

Liquidity indicator that measures the ratio of quick assets to quick liabilities to assess thefirms ability to meet its immediate debts

Assesses firms ability to meet its immediate debts with its immediate assets High WCR, Low QAR will it survive?

o Depends on whether the business can sell its stock on time (speed of its tradingcycle)

To fix low QAR:


18/24


o Positive bank balanceo Improving debtorso Reduce level of creditors and accrued expenses

Cash Flow Cover (CFC)

times per period

As mentioned in June, cash is one of the most important assets for a business. The ability to

generate cash to pay Creditors is important because, as mentioned above, we need a constant

supply of stock from Creditors in order to serve our customers.

A liquidity indicator that measures the number of times Net Cash Flows from OperatingActivities is able to cover average Current Liabilities

No set benchmark; the longer the period examined, the more times CL will be coveredStability

Debt Ratio

%

What % of the business assets are financed by external sources (liabilities)?

The higher the Debt Ratio the greater the risk for the business, the more interest will be incurred in

the future and future cash flows are tied up in cash repayments.

Measures % of assets financed by liabilities therefore indicates reliance on borrowed funds Measures Long term stability of the firm Assessed with ROI Balance is required high enough to maximise ROI, but low enough to maintain stability Higher Debt Ratio susceptible to interest rate hikes, decreasing cash flow and Net Profit

Limitations of financial information

Use of historical data cannot guarantee what will happen in the future Many indicators rely on averages, concealing details about individual items Firms use different accounting methods, undermine comparability

Relationship between ratios

ROI and Debt ratio ROI and ROA ROA and ATO NPM, ATO and ROA

Other measures

Trends variances in ratios/indicators over a number of reporting periods

Benchmarks standards within an industry that every business in that industry measure themselves

against. E.g. Industry Average; Budgeted goals; Past performance


19/24


Non financial indicatorsdata gathered from sources that arent strictly $ related.

Aspects:

Firms relationship with customers

Repeat sales Sales Returns Customer complaints Customer satisfaction surveys

Suitability of stock

Number of sales returns, why did they return it? Number of purchase returns Number of customer complaints

Firms relationship with employees

Performance appraisal of employees Average length of staff employment, staff turnover Industrial action; sick leaves

State of the economy

Interest Rates Unemployment Rate Competition

Strategies to improve performance:

Earning Revenue:

Selling price Advertising Stock mix More efficient NCA Customer Service

Controlling Expenses:

Management of stock (cheaper/reduce storage costs/better quality products) Management of staff (training/incentives) to improve productivity Management of NCA inefficient assets should be removed


20/24


Possible Narrations

The 3 key areas: Units, stock item, Document number

Purchases Return: 20 Tyres returned to suppler wrong type (Cr. Note 11)

Sales Return: 3 books returned by customer too many supplied (Cr. Note 21)

Stock Write down: Write down of 6 dishwashers to NRV release of new model (Memo 31)

Depreciation: Depreciation of Asset straight-line/reducing balance Method (Memo 1)

Loss(profit) on disposal of asset Disposal of equipment at a loss/profit (Rec. 17)

Credit Purchase of NCA Credit purchase of Van (Inv. 12)

Prepaid RevenueAdjusting entry to record one months rent revenue earned (Memo 12); Prepaid

sales earned (Inv.12)

Accrued RevenueAdjusting entry to record one months interest earned but not yet received

(Memo 12)

Stock loss/gain Physical Stocktake has detected a stock loss/gain of 3 units of Dishwashers (Memo

12)

Bad Debts Ace Supplies deemed irrecoverable, written off as Bad Debt (Memo 40)

Correcting entry Correcting entry drawings recorded as advertising (Memo 50)

Donation 3 wheelbarrows donated to school (Memo 10)

Closing expense and revenue a/c to Profit and Loss summary a/c - Closing expense/revenue

accounts to Profit and Loss Summary account

Transfer of Profit/Loss to Profit and Loss Summary a/c - Transfer of Net Profit from Profit and Loss

summary account to Capital Account

Accrued Expense Adjusting entry to record electricity consumed but not yet paid (Memo 15)

Prepaid ExpenseAdjusting entry to record one month insurance incurred (Memo 9)

Drawings of stockDrawings of 2 cabinets by owner (Memo 12)


21/24


Templates

Purchase Returns General JournalGeneral Ledger Subsidiary Ledger

Date Details Debit Credit Debit Credit

March 31 Creditors Control 1760

Creditor-X 1760

Stock Control 1600

GST Clearing 160

Return of 20 tyres to

supplier due to wrong size

(Cr. Note 11)

Sales Returns

General JournalGeneral Ledger Subsidiary Ledger

Date Details Debit Credit Debit Credit

May 23 Sales Return 90

GST Clearing 9

Debtors Control 99

Debtor-X 99

Stock Control 40

Cost of Sales 40

3 books returned by customer

too many supplied (Cr. Note 21)

Stock Writedown

General JournalDate

2012

Particulars General Ledger Subsidiary Ledger

Debit Credit Debit Credit

Dec 31 Stock Writedown 300

Stock Control 300

Adjusting entry for Write down of 6

dishwashers to NRV release of new

model (Memo 31)


22/24


Depreciation

General JournalGeneral

Ledger

Subsidiary

Ledger

Date Details Debit

$

Credit

$

Debit

$

Credit

$

June 30 Depreciation of Van 6 400Accumulated Depreciation of Van 6 400

Depreciation of van 20% reducing balance method or

Straight line method 20% (Memo 12)

Disposal of NCA


Ledger

Subsidiary

Ledger

Date Details Debit$

Credit$

Debit$

Credit$

May 1 Disposal of Van 30 000

Van 30 000

Accumulated Depreciation of Van 20 000

Disposal of Van 20 000

Sundry Creditor Dodge Motors 7 000


Loss on Disposal of Van 3 000


Van 40 000

GST Clearing 4 000

Sundry creditor Dodge Motors 44 000

Trade-in of old van on new van from Dodge Motors (Inv. 19)

Credit Purchase of NCA


Ledger

Subsidiary

Ledger

Date Details Debit

$

Credit

$

Debit

$

Credit

$

April 1 Delivery Van 22 500

Prepaid Service Contract 1 200

GST Clearing 2 370

Sundry Creditor Jane Motors 26 070

Credit purchase of Delivery Van (Inv. 36)

Prepaid Revenue


Ledger

Subsidiary

Ledger

Date Details Debit

$

Credit

$

Debit

$

Credit

$

June 30 Prepaid Rent Revenue 6 000

Rent Revenue 6 000

4 months rent earned (Memo 44)


23/24


Receipt of Prepaid Sales received in full, but stock yet to be supplied


Ledger

Subsidiary

Ledger

Date Details Debit$

Credit$

Debit$

Credit$

Prepaid Sales Revenue

Sales Revenue

Cost of Sales

Stock Control

Prepaid sales revenue earned stock delivered to customer

(Inv. 44)

Accrued Revenue


Ledger

Subsidiary

LedgerDate Details Debit

$

Credit

$

Debit

$

Credit

$

Aug. 31 Accrued Interest Revenue 700

Interest Revenue 700

Interest revenue earned but not yet received (Memo 95)

Bad Debts


Ledger

Subsidiary

Ledger

Date Details Debit

$

Credit

$

Debit

$

Credit

$

Mar. 25 Bad Debts 1 600

Debtors Control 1 600

Debtor I. Solvent 1 600

Debt written off as irrecoverable

(Memo 52)

Correcting Entry

General

Ledger

Subsidiary

Ledger

Date Details Debit

$

Credit

$

Debit

$

Credit

$

June 30 Telephone Expense 50

Insurance 50

Correcting entry telephone charges were incorrectlydebited to insurance (Memo 16)

Advertising (Donation) of stock


Ledger

Subsidiary

Ledger

Date Details Debit

$

Credit

$

Debit

$

Credit

$

Jan. 16 Advertising 500

Stock Control 500

10 frames taken for advertising use (Memo 14)/ 3 wheel

barrows donated to school (Memo 14)


24/24


Closing Revenue/Expense accounts and transferring Profit(Loss) to Capital


Ledger

Subsidiary

Ledger

Date Details Debit

$

Credit

$

Debit

$

Credit

$

Aug. 31 Sales 62 000Interest Revenue 1500

Profit and Loss Summary 63 500

Closing revenue accounts to P&L Summary (Memo 41)

Aug. 31 Profit and Loss Summary 61 900

Cost of Sales 32 000

Wages 12 000

Rent Expense 9 000

Advertising 8 400

Stock Loss 500

Closing expense accounts to P&L Summary (Memo 41)

Aug.31 Profit and Loss Summary 1 600

Capital 1 600

Transfer of Net Profit to Capital account (Memo 41)

Drawings of stock


Ledger

Subsidiary

Ledger

Date Details Debit

$

Credit

$

Debit

$

Credit

$

May 7 Drawings 480

Stock Control 480

Drawings of 2 cabinets by owner

(Memo 34)

Prepaid Expense


Ledger

Subsidiary

Ledger

Date Details Debit

$

Credit

$

Debit

$

Credit

$

Feb. 28 Rent Expense 240

Prepaid Rent Expense 240

Balance day adjustment to record one months Rent incurred

(Memo 84)

Accrued Expense


Ledger

Subsidiary

Ledger

Date Details Debit

$

Credit

$

Debit

$

Credit

$

Dec. 31 Advertising Expense 3 000

Accrued Advertising 3 000